Could it be that the Chinese Communist Party now considers tax cuts and supply-side economics viable policy options? In this at times astonishing op-ed article from China's State-controlled Oriental Morning Post, the writer rejects the flirtation of another Chinese economist with Reaganomics, likening the immediate adoption of such a policy to 'throwing a sausage to a hungry dog and running away.'

By Mr. Xiaoming Yuan, Special Correspondent on the U.S. for the Oriental Morning Post

In regard
to the battle between [Chinese economists] Weiying Zhang and Lieshan Yan's over
"rationality" versus "intuition," I add my own views with this
short account. I originally thought Mr. Yan's "intuition" more or
less reflected the general sentiment of the people toward reform, but after
reading his recent article in the China Economic Times entitled "Please Take
Rationality Down from the Altar," I thought everything he said about "intuition"
went too far - especially his reference to how American President Ronald Reagan
won experts over to his policy of tax cuts by using his "intuition." That
was really taking things too far.

Mr. Yan commits
the error of Taking Down Mr. Zhang's "aloof rationality" and
replacing it with his own "intuition," and for this he cites the Reagan
economic policies of the 1980s as an illustration. According to Mr. Yan, Reagan
depended completely on his own "intuition" to draw up and carry out
his economic policies, and he obtained successful results.

"Starting
from the beginning of 1983," he says, "the roller-coaster American
economy suddenly left behind the 'stagflation ' of the 1970's, and entered into
6 years of continuous, high-speed growth, leading to the prominence of Reagan and
the continuation of his policies."

Mr. Yan correctly
described the effects of the Reagan administration's policies, but his explanation
for it's success is all wrong. Reagan's economic policy by no means stemmed from his own "intuition."
Rather, it was a rationally thought-out and executed plan called "Reaganomics []."

Jude Wanniski; Robert Mundell; and Arthur Laffer,
Creators and Practitioners of Supply-Side Economics,
Known to Its Detractors as 'Trickle-Down' Economics.

Reaganomics
took so-called "supplyside economics []" as its rationale. At the time
economists of the supply-side school were certainly not in the majority - they
had only begun to promote their theories in the 1970s. The term "supply-side
economics" was coined by American economist Jude Wanniski [] in 1975. Besides
Wanniski, Robert Mundell and Arthur Laffer are two other esteemed "supply-side"
economists; Robert Mundell [] is a renowned Canadian economist, currently
professor at Columbia University, and Arthur Laffer [] is an American economist who
was a member of the Reagan Administration's Economic Policy Board [and his
budget director. Just as the name suggests, supply-side economics contradicts
the Keynesian tradition of "demand []." Its emphasis is on the supply
side of the supply-demand equation, since, as its proponents hold that, "supply
creates its own demand."

The
ascendancy of supply-side economics in the 1980s can be attributed to two main
reasons: first, the defeat of Keynes' "demand" theory during the 1970s,
and second, the impact of Reagan's conservative ideas on the American political
arena.

The supply-side
policies of tax cuts happened to coincide with Reagan's own economic values and
ideas. Reagan's greatness lay in his ability to use plain talk, at times even emotional,
to explain a very complex economic theory to the American public. For example, he
would say that tax cuts stimulate the economy and create employment, and that revenue
could be maintained through the general increase in wealth under low taxes - the
government and the people would get rich together. At the time, most American voters
accepted the idea of tax cuts under Reaganomics, because they identified with
the ideas and understood the "intuition" behind his economic policies.
Without a doubt, if it were some economist rather than Reagan putting forth the
idea of supply-side economics to the populace, Reagan's supporters would not
have been able to fathom the concept. Afterwards, Reagan even used his charm to
convince the Democratic-led Congress.

As Mr. Yan
points out, Reagan's economic policy was a product of democracy. On this point,
I agree with him - an economist may be an expert on economic theory, but
national economic policy needs to pass through the democratic process. A
democratic system is not limited to politics, but includes economic policy as
well.

The purpose
of Mr. Yan and others, in stating at this critical moment how "intuition"
reflects public sentiment, is to plead for reform that would help secure the
interests and a few well-earned rights for the multitudes, the power to speak
freely and profit from one's labor.

But "intuition"
taken to extremes can also become "aloof" and disadvantageous to the
people. If all we pay attention to are the ups and downs of sentiment, we will
be unable to solve any problem or put any real plan into practice, and the
danger of "unfair arrangements" always lurks.

As Reagan's
economic policies had a firm rationale as well as "intuition," China's
reform plan also needs an underlying economic theory. But in drawing up and
carrying out such a policy, pure idealism is unrealistic. If the ideal and fair
solution is to completely overthrow the current system and start from scratch, then
all Chinese might start at the same level, but such equality would come at a
heavy cost to China's economy. Obviously, this is neither feasible nor
realistic.

From the
rationalist standpoint, Chinese economists like Weiying Zhang are quite capable
of making rational suggestions based on economic theory - rational indeed, to
the point of ransoming authority for the sake of peace. This is because past revolutions
brought about radical changes in the ways of holding power on the one hand, and
making a profit on the other. But each revolution has demanded its own kind of
payment.

Economists
like Mr. Zhang cannot determine with certainty what the price that the
authorities will have to pay, and neither can government policymakers; naturally,
just like Mr. Zhang, other economists are permitted to suggest their own plans.

Government
policymakers may draw up concrete economic policies, but in the end, these
policies must obtain the approval of the people, through a kind of democratic process.
Because after all, it is the population that will have to pay the price.

Everyone
knows that there is no perfect plan for reform, but a plan that calls for no change
at all would be disadvantageous to China's economic development and social
harmony. The most important thing is not to hand over the ransom money [cutting
taxes], which would be a case of "throwing a sausage to a hungry dog and
running away" - that is the kind of reform which we absolutely do not want.
A plan which has passed through the democratic process is the most suitable
safeguard against ransoming off authority [the government giving up control of
the nation's purse strings, as under Reaganomics].

Therefore,
as the experiments in economic reform begun over 20 years ago suggest, first focus
on a few small-scale problems arising from reform - for example, a few
experiments with [private] property rights, while carrying through previously
established capitalistic reforms, while controlling the stripping-away of state-control.
It is no exaggeration to say that this stripping-away [of State control] will
be the most important peaceful revolution in Chinese history.

This
heavy burden of history will fall on the shoulders of China's politicians,
economists, intellectuals, and its general population too, but no side can
carry the unprecedented responsibility for and consequences of these reform by
itself.